U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities and Exchange Act
of 1934
For the quarterly period ended August 31, 2001
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
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(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
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(Address of principal executive offices) (Zip Code)
505-247-2384
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Issuer's telephone number, including area code
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares of outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of October 10, 2001
- 2,803,763 shares $1.00 Par Value
INDEX
Page No.
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PART I. Financial Information
Consolidated Balance Sheets
August 31, 2001 and November 30, 2000 1
Consolidated Statements of Income
Third quarter ended
August 31, 2001 and 2000 2
Consolidated Statements of Cash Flows
Third quarter ended
August 31, 2001 and 2000 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5 - 7
PART II. Other Information 8
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2001 AND NOVEMBER 30, 2000
ASSETS 2001 2000
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CURRENT ASSETS:
Cash and cash equivalents $ 106,132 $ 6,729
Receivables, less allowance for doubtful accounts 170,510 362,889
Receivables from affiliates and related parties 592,323 527,423
Inventories 404,536 182,498
Prepaid expenses and deposits 38,882 73,292
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Total current assets 1,312,383 1,152,831
PROPERTY, PLANT AND EQUIPMENT, at cost 3,283,553 3,147,237
Less accumulated depreciation and depletion (1,454,811) (1,249,060)
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1,828,742 1,898,177
INVESTMENT IN UNCONSOLIDATED AFFILIATES 798,281 2,155,158
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Total assets $ 3,939,406 $ 5,206,166
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 344,209 $ 433,889
Short-term debt related party 170,252 175,000
Current portion of long-term debt 981,364 997,196
Deferred obligations to related parties 4,678,930 4,319,245
Other current liabilities 114,347 90,184
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Total current liabilities 6,289,102 6,015,514
LONG-TERM DEBT, less current portion 441,320 558,261
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized 6,000,000
shares, issued and outstanding 2,803,763 shares
in 2001 and 2000 2,803,763 2,803,763
Additional paid-in capital 5,871,218 5,871,218
Accumulated deficit (11,465,997) (10,042,590)
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Total stockholders' investment (2,791,016) (1,367,609)
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Total liabilities and stockholders' investment $ 3,939,406 $ 5,206,166
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The accompanying notes are an integral part of these consolidated
statements. The 2001 and 2000 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRD QUARTERS AND NINE MONTHS ENDED AUGUST 31, 2001 AND 2000
Third Quarter Ended Nine Months Ended
AUGUST 31 AUGUST 31
2001 2000 2001 2000
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REVENUES & OTHER ITEMS:
Sales $ 555,385 $ 584,884 $ 1,576,404 $ 1,635,733
Royalties 66,339 - 95,764 -
Interest income 1,238 - 10,865 188
Gain on sale of equipment - - 19,555 110,232
Gain on sale of property - 244,653 - 244,653
Income (loss) from affiliates:
Equity in earnings (235,812) (196,866) (669,308) (265,364)
Consulting fees - - - 7,500
Other income (loss) (67,254) 5,961 (42,472) 5,961
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Total revenues 319,896 638,632 990,808 1,738,903
EXPENSES & OTHER ITEMS:
Cost of sales 363,383 456,136 1,449,121 1,387,412
General and administration 203,445 181,784 543,989 523,842
Interest 67,520 66,772 215,066 193,684
Depreciation and amortization 70,269 63,982 206,039 193,428
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Total costs and expenses 704,617 768,674 2,414,215 2,298,366
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Pretax income (loss) from operations (384,721) (130,042) (1,423,407) (559,463)
Provision for income taxes - - - -
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Net income (loss) from operations $ (384,721) $ (130,042) $(1,423,407) $ (559,463)
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Income (loss) from operations (0.14) (0.05) (0.51) (0.20)
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Net income (loss) per share $ (0.14) $ (0.05) $ (0.51) $ (0.20)
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Weighted Average Number of Shares of
Common Stock Outstanding 2,803,763 2,787,096 2,803,763 2,787,096
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The accompanying notes are an integral part of these consolidated
statements. The 2001 and 2000 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 2001 AND AUGUST 31, 2000
Nine Months Ended
August 31
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $(1,423,407) $ (559,463)
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 206,039 193,428
Equity in loss of affiliates 669,308 265,364
(Gain) on sale of equipment (19,555) (110,232)
Loss on sale of investment 67,254 -
Changes in assets and liabilities:
Decrease in receivables 192,379 (50,457)
(Increase) decrease in inventories (222,038) 202,771
Decrease (increase) in other current assets 34,410 (5,995)
(Decrease) in trade accounts payable (89,680) (123,298)
Increase in deferred obligations to related parties 290,037 418,912
Increase (decrease) in other current liabilities 24,163 (109,754)
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Total adjustments 1,152,317 680,739
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Net cash (used) provided by operating activities (271,090) 121,276
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investment 624,985 -
Sale of equipment 31,912 128,214
Capital expenditures (153,631) (115,547)
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Net cash provided by investing activities 503,266 12,667
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in short-term debt (15,832) (48,151)
(Decrease) in long-term debt (116,941) (95,365)
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Net cash (used) by financing activities (132,773) (143,516)
Net increase (decrease) in cash and cash equivalents 99,403 (9,573)
Cash and cash equivalents at the beginning of the year 6,729 17,689
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Cash and cash equivalents at the end of the year $ 106,132 $ 8,116
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 87,119 $ 65,735
The accompanying notes are an integral part of these consolidated statements.
The 2001 and 2000 financial information is unaudited.
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying statements, which should be read in conjunction
with the Consolidated Financial Statements included in the
November 30, 2000 fiscal year end Annual Report filed on Form 10-
KSB, are unaudited but have been prepared in the ordinary course
of business for the purpose of providing information with respect
to the interim periods, and are subject to audit at the close of
the year. However, it is the opinion of the management of the
Company that all adjustments (none of which were other than
normal recurring accruals) necessary for a fair presentation of
such periods have been included.
The Consolidated Financial Statements prepared for fiscal
years 2000, 1999, 1998, 1997, 1996, 1995,1994, 1993, 1992 and
1991 were unaudited because the Company elected to not incur the
expense of an audit and to conserve its cash for other corporate
requirements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Third quarter ended August 31, 2001 compared
to the third quarter ended August 31, 2000
For the third quarter ended August 31, 2001, the Registrant had revenues
of $319,896, which resulted in a net loss of $384,721 or $0.14 per share.
For the third quarter ended August 31, 2000, the Registrant had
revenues of $638,632, which resulted in a net loss of $130,042 or
$0.05 per share.
The revenues in the third quarter of 2001 decreased from 2000 as a result
of a decrease in sales from $584,884 to $555,385, a decrease in gain on
sale of property by $244,653, which was related to the final distribution
of L-Bar Product assets, an increase in equity losses from $196,866 to
$235,812, and a loss of $67,254 from sale of the Registrant's Singapore
investment. The sales at the Registrant's silica sand operation decreased
as a result of a drop in cement sand sales, which was partially offset by
an increase in demand for the Registrant's low iron glass sand.
The plant improvement program was completed during the third quarter 2001.
Included in revenues is royalty income from the Registrant's interest in
the McArthur River uranium mine. The Registrant's equity income decreased
as a result of the continuing problems in the primary steel industry,
including the bankruptcy by LTV Steel. On July 31, 2001, the Registrant's
affiliate Rossborough Manufacturing Co. LP completed the transaction
describe in item 5 below. It is expected that the combination will
improve the results in the affiliate.
The costs and expenses were $704,617 and $768,674 in the third quarter of
2001 and 2000, respectively. The cost of sales decreased by $92,753 from
2000 to 2001 as a direct result of the plant improvements, which were
completed during the quarter. The Registrant intends to continue its
efforts to lower the production costs related to its low iron sand.
The G&A and interest costs increased slightly from 2000 to 2001. Some of
the expenses contained in the general and administrative costs pertaining
to salaries of the officers and deferred compensation have been accrued
but not paid, as the Company is conserving its cash.
Nine months ended August 31, 2001 compared
to the nine months ended August 31, 2000
For the nine months ended August 31, 2001, the Registrant had revenues of
$990,808, which resulted in a net loss of $1,423,407 or $0.51 per share.
For the nine months ended August 31, 2000, the Registrant had revenues
of $1,738,903, which resulted in a net loss of $559,463 or $0.20 per share.
The revenues for the nine months of 2001 decreased from 2000 primarily as
a result of an increase in equity losses from $265,364 to $669,308, a
decrease in gain on sale of equipment of $90,667, a decrease in the sale
property by $244,653, which was related to the final distribution of L-Bar
Product assets, and a loss of $67,254 from sale of the Registrant's
Singapore investment. The Registrant's equity income decreased as a
result of the continuing problems in the primary steel industry,
including the bankruptcy by LTV Steel.
The costs and expenses were $2,414,215 and $2,298,366 in the nine months
of 2001 and 2000, respectively. For the current nine month period, the
cost of sales increased by $61,709 from 2000 to 2001 as a result of
operating problems in the first quarter; these problems were corrected
during the third quarter as the project was completed during the third
quarter. The Registrant intends to continue its efforts to lower the
production costs related to its low iron sand. The G&A and
interest costs increased slightly from 2000 to 2001. Some of the expenses
contained in the general and administrative costs pertaining to salaries
of the officers and deferred compensation have been accrued but not paid,
as the Company is conserving its cash.
Liquidity and Capital Resources
Period from December 1, 2000 to August 31, 2001
The Company's net cash (used) provided by operating activities was
$(271,090) and $121,276 for the nine months ended August 31, 2001 and
August 31, 2000, respectively. The net cash provided by investing
activities was $503,266 and $12,667 for the same nine months in 2001
and 2000, respectively. The cash provided by investing activities was
from the sale of the Company's Singapore investment and surplus
equipment, and the capital expenditures were for capital improvements
to the sand project. The Company decreased its long-term debt by $116,941
and $95,365 for the nine months ended August 31, 2001 and 2000,
respectively. The Company's cash and cash equivalents increased
(decreased) by $99,403 and $(9,573) for the nine months
ended August 31, 2001 and 2000, respectively.
The Company had working capital deficits of approximately $4.98 million and
$4.86 million for the nine months ended August 31, 2001 and the year ended
November 30, 2000, respectively. The working capital deficit increased as a
result of the operating losses. As part of the Company's program to conserve
cash in order to operate the company, part of the salaries due to the officers
of the Company, all of the deferred compensation due to the deceased chairman's
spouse, and part of the interest due on certain loans were accrued but not
paid for the nine months ended August 31, 2001 and 2000, respectively. As
of August 31, 2001, these accruals (salaries, deferred compensation and
deferred interest) exceeded $4.9 million.
For the current year, the Company plans to continue to accrue part of the
obligations described in the preceding paragraph and expects to continue
to generate sufficient cash flow to operate.
Forward-Looking Statements. The Company may from time to time make written
or oral "forward-looking statements", within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements contained
in this Form 10QSB and in other documents filed by the Company with the
Securities and Exchange Commission and in its reports to stockholders,
as well as elsewhere. "Forward-looking statements" are statements such
as those contained in projections, plans, objectives, estimates,
statements of future economic performance, and assumptions related to any
of the forgoing, and may be identified by the use of forward-looking
terminology, such as "may", "expect", "anticipate", "estimate", "goal",
"continued", or other comparable terminology. By their very nature,
forward-looking statements are subject to known and unknown risks and
uncertainties relating to the Company's future performance that may cause
the actual results, performance or achievements of the Company, or
industry results, to differ materially from those expressed or implied
in such "forward-looking statements". Any such statement is qualified
by reference to the following cautionary statements.
The Company's business operates in highly competitive markets and is subject
to changes in general economic conditions, competition, customer and market
preferences, government regulation, the impact of tax regulation, foreign
exchange rate fluctuations, the degree of market acceptance of the products,
the uncertainties of potential litigation, as well as other risks and
uncertainties detailed elsewhere herein and from time to time in the
Company's Securities and Exchange Commission filings. This Form 10QSB
contains forward looking statements, particularly in the section: Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations, and Part II Item 5. other information, and in some of
the footnotes to the financial statements. Actual results could differ
materially from those projected in the forward looking statements as a
result of known and unknown risks, uncertainties, and other factors,
including but not limited market acceptance of the Company's products
and services, changes in expected research and development requirements,
and the effects of changing economic conditions and business conditions
generally. The Company does not undertake and assumes no obligation
to update any forward-looking statement that may be made from time to
time by or on behalf of the Company.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
On July 31, 2001, Rossborough Manufacturing Co. L.P.
(Rossborough), in which the Registrant has a 44% equity interest,
finalized the acquisition of substantially all of the assets and
certain of the liabilities of Reactive Metals and Alloys
Corporation (Remacor) of West Pittsburgh, PA. Both companies
service the global steel industry by providing hot metal
desulfurization, desulfurization equipment, and metallurgical
additives for secondary steel refining, technology and field
service. Other products and services are also provided to the
global die casting industry.
The acquisition entity is Rossborough-Remacor LLC, and the LLC
will also contain substantially all of Rossborough's assets and
liabilities. Rossborough-Remacor LLC will have global sales in
excess of $80 million and will be better able to compete in the
steel industry, which has been plagued by financial problems
related to over capacity. By consolidating the companies, the
LLC plans to lower its cost structure to the benefit of all
parties.The purchase price for the Remacor assets was the
assumption of certain liabilities, a subordinated note in an
amount equal to $4,000,000 and a 35% membership interest in
Rossborough-Remacor.
Gerald R. Zebrowski, President and CEO of Rossborough, will
retain the position of President and CEO of Rossborough-Remacor.
Joseph R. Jackman, President and CEO of Remacor, will be elected
Vice President and Chief Operating Officer of Rossborough-
Remacor.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports - A form 8K was filed March 7, 2001 - see Item 5 above.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESERVE INDUSTRIES CORPORATION
(Registrant)
/s/ William J. Melfi
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William J. Melfi, Vice President Finance
and Administration
(Principal Financial and Accounting
Officer and Authorized Officer)
Date: October 10, 2001